US Fiscal: Caution on a Budget Deal

Published on December 10, 2013

Despite the optimistic headlines that a budget conference committee agreement will be unveiled some time today, we would urge caution in assuming a deal will indeed come together. And we would likewise add a word of caution whether a floor vote in the House can come together by the end of this week.

*** If there is even a minimal budget agreement, the next 24 hours will prove pivotal in determining whether a House floor vote is possible by the end of this week or whether Speaker John Boehner will be willing to keep the House in session into next week. The odds are in fact fast rising that a House vote on any budget agreement will be punted into the new year to gain more time to sell the restive Republican House Conference on the merits of a deal that avoids another costly confrontation over a government shutdown in January. ***

Finding the Votes

The budget conference co-chairs House Republican Paul Ryan and Senate Democrat Patty Murray are meeting today, which is what is probably triggering the headlines about an imminent deal.

And there is obviously enormous political pressure to agree to even a barest minimal of a budget agreement to lift some of the sequester and spending levels over the next two years. We do think (hope?) there will indeed be a budget deal before the January 15 deadline for the current Continuing Resolution (SGH 12/4/13, “US Fiscal: Edging to a (Very) Small Budget Deal” and SGH 11/20/13, “US Budget: Early Winds of a Small Deal”).

The leadership on both sides are pressing hard to make a deal work to avoid another government shutdown in mid-January, and both Senate and House appropriators are likewise pressing their colleagues hard for more room on their spending bills, especially in defense spending, by lifting parts of the sequester and increasing the top line level of spending.

But we likewise caution it is not a done deal, and that there is no deal until there is a deal as all the bits and pieces will not fall into place until the last possible moment. And then finding the votes to clear the Senate and especially the House with so little preparation and selling its key points is going to be problematic.

Speaker Boehner and the House Republican leadership are already into a so-called “strategy” meeting this morning, and will be meeting with their Republican conference in multiple meetings through today and tomorrow, mostly to assess where the votes are and to gauge the size of any near-likely rebellion from its Tea Party faction.

The Senate leadership has also just started its briefing on the terms of the budget agreement so far. Senate Majority Leader Harry Reid faces a far less difficult vote gathering count to get to 60 votes if budget agreement gets that far. Indeed, the odds on passing any budget agreement will rise or fall in the House.

So far, some specifics like the extra $2.50 a flight on airline passengers or the extremely modest increase in federal employee contributions to their pensions have been leaked, but mostly to flush out where and how strong the political resistance is rather than as firm signs of progress. We understand the size of the offsets was perhaps no more than $35 billion as of yesterday, and even that is still being discussed.

There is of course the intense lobbying by various interest groups against the specific fees being proposed in the agreement to offset the higher spending levels being sought. Even the projected amount of revenues derived from the proposed spectrum auction is open to question, depending on whether the big telecom companies are allowed to participate. And that is the easiest piece of the budget puzzle.

The proposal to require federal employees to pay a modest addition in premium for their pensions, for instance, is meeting fierce resistance from Democrats, including Minority Whip Steny Hoyer and Budget Committee ranking minority member Chris van Hollen, who both represent Maryland districts with big federal employee constituencies.

How Big a House Rebellion?

But before even going into any of the finer details, resistance is fast building on the broad objectives of the budget agreement itself.  For many Republicans in particular, the very principle of trading away even a tiny portion of the sequestered $967 billion level of spending in FY2014 for new revenues through fees — taxes to them — is anathema and is triggering a mounting rebellion among the Tea Party faction.

Just how big that rebellion is likely to be by the end of the week — whether narrowed down to a core of no more than a dozen or as large as 40 or more due to fears of being primaried next year — is what the House Republican leadership is busily assessing in its meetings over today and tomorrow.

One reason driving the option to punt into January is to buy some more time to neutralize the objections to both broad and specific aspects of any budget agreement. And if Boehner is unsure of the votes, that will get back to Ryan before he signs off on an agreement.

On the other end, for both some Republicans and many Democrats, the size of the deal lifting the sequester — which may come in as low as a mere $35 billion our barely 4% of the total sequestered budget — is simply so small as to be meaningless. If the Federal Reserve is hoping to see some additional easing of fiscal drag next year, it may be minimal at best.

Another large issue looming on the margins of the budget deal is how hard House Minority Leader Nancy Pelosi will press on including an extension of the unemployment insurance. The Democrats waited until last week to put it on the table because that is a maximum moment of political leverage.

We suspect the UI issue will be pushed into the new year, probably trimmed down to perhaps 60 days at most to reduce its annual $25 billion price tag to a more workable $4 billion or so and attached to an appropriations bill, assuming there is a budget resolution agreement. But the politics of such a maneuver will take time.

Indeed, while we wait to see if the budget conference co-chairs Murray and Ryan can get to an agreement in the next 24 hours or so, we suspect the House Republican leadership may be more likely than not to punt a vote on the budget to early January rather than try to face down a Tea Party rebellion at the end of this week or to keep the House in session into next week.

The one thing the House Republican leadership wants to avoid is another fiscal fist-fight within its ranks or relying on too many Democratic House votes going right up against Christmas Eve, For Speaker Boehner, been there, done that, and it may prove to be safer to deal with the headlines of a stalled deal rather than a failed deal.

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